As per the Business Today report, the Reserve Bank of India (RBI) makes it mandatory for financial institutions to link their home loan interest rates to the repo rate by 1st October 2019.
This initiative may make home loan interest rates much affordable than before. Thus, existing and new borrowers will benefit from lower EMIs.
However, the interest rate that a borrower can avail depends upon the lender. Financial institutions consider various factors before deciding the same. They can increase or decrease the rates based on these factors.
The interest rate of your home loan depends on several factors, such as:
Your annual income plays a significant role while availing a home loan at a lower interest rate. If you hold a regular source of income with a considerable salary, there are chances that you can avail of advances with low home loan interest rates.
With a significant source of income, several financial institutions and NBFCs offer up to 3-EMI holidays. Besides, your employment also plays a crucial role while determining your interest rate.
#2. Credit score
Your credit score can determine your home loan EMIs and interest rates. You are more likely to avail the best deals on the interest rate if you hold a CIBIL score of 750 or above.
In case you do not maintain such a CIBIL score, you can increase it by paying your existing dues and time. If you use a credit card, utilizing only 30% of the limit will also help you to improve your score.
An applicant’s age is also an essential factor while determining the interest rate. Applicants in their 20s are more likely to avail a low home loan interest rate than compared to those above that.
#4. Type of interest rate
The type of interest rate to go for is one of the things that you must know before taking a home loan. You can choose between two types of interest rate, such as:
Fixed interest rate: A fixed interest rate remains unchanged irrespective of the change in the MCLR.
Floating interest rate: A floating interest rate changes as and when the MCLR changes. With the difference in the interest rate, your housing loan EMIs also fluctuates.
#5. Outstanding dues
In case you have any unpaid loans, the interest rate may increase for a home loan. Thus, do make sure to pay your EMIs on time to avoid hefty penalties and higher interest rates.
#6. Loan Tenure
While you avail a loan with an extended tenure, the interest rate incurred may be high as compared to the interest rate for shorter loan tenure. However, with a shorter tenure, the EMIs become expensive, which can increase the burden on your pocket. You can use a loan EMI calculator to estimate your monthly payments and to plan your finances.
Several financial institutions and NBFCs offer such advances with a prolonged tenure. Bajaj Finserv is one such NBFC that provides Home Loan at an attractive interest rate against minimal documents. They also offer tenures up to 20 years, a substantial loan amount, online account access, instant approval, etc.
Such advances also offer you income tax benefits for the principal amount and interest rate. You get to enjoy tax benefit under Section 80C of the Income Tax Act for the principal payable of up to Rs. 1.5 Lakh. You can also claim home loan interest tax benefit under Section 24(b) against the interest amount payable of up to Rs. 2 Lakh.